Competing with Quality Leeds School of Business University of Colorado Boulder, CO Professor Stephen Lawrence

The Art of Quality In 1946 Ford Motor Company Limited commissioned Terence Cuneo to record, on canvas, six images featuring post war Dagenham vehicle production. Quality Inspection Vehicle Inspection

The Value Equation Q

Objectives  Why Quality is Important  Dimensions of Quality  Service Quality  Quality Costs  Quality Pioneers and Gurus  Total Quality Management (TQM)  Recent Quality Progress  Six Sigma  Other Quality Programs  Quality Strategy

Why Quality is Critical  Quality: Quality is the single most important thing you can work on to improve the effectiveness of your company. It's as simple as that. Things just cascade when you get control of your quality. John Young, CEO Hewlett Packard  Micro-economic interpretation: Quantity Price DemandSupply Quality affects both!

Why Quality is Critical

The Competition  The Japanese are headed for world quality leadership and will attain it in the next two decades because no one else is moving there at the same pace. J.M Juran, 1967  IBM decided to have some parts manufactured in Japan as a trial project. In the specifications, they set the limit of defective parts at three units per 10,000. When the shipment arrived from Japan, it included this letter:  “We Japanese have hard time understanding North American business practices. But the three defective parts per 10,000 have been included and are wrapped separately. Hope this pleases.” Toronto Sun

Eight Dimensions of Quality 1. Performance the primary operating characteristics of the product or service. 2. Features the characteristics that supplement the basic functioning of the product or service. 3. Reliability probability of the product or service failing within a specified period of time. 4. Conformance the degree to which a product or service meets acknowledged standards Quality is not uni-dimensional, but has a number of important dimensions: David Garvin, “Competing on the Eight Dimensions of Quality,” Harvard Business Review, Nov-Dec 1987

Eight Dimensions of Quality 5. Durability a measure of product life (both technical and economic). 6. Serviceability the speed, courtesy, competence, and ease of repair or recovery. 7. Aesthetics how a product or service looks, feels, sounds, tastes, or smells. 8. Perceived Quality various tangible and intangible aspects of the product from which quality is inferred. Quality is not uni-dimensional, but has a number of important dimensions: David Garvin, “Competing on the Eight Dimensions of Quality,” Harvard Business Review, Nov-Dec 1987

Detroit’s New Quality Gap McKinsey Quarterly Ganguli, Kumaresh, and Satpathy

Quality Costs  Prevention costs: process/product design, training, vendor relations;  Appraisal costs: quality audits, statistical quality control;  Correction costs (internal failure): yield losses, rework charges;  Recovery costs (external failure): returns, repairs, lost business. Costs associated with quality:

Quality Costs  Quality costs escalate as value is added to product or service: Supplier Inspection Incoming Inspection Fabrication Inspection Subproduct Test Final Product Test Field Service $3 $30 $300 Cost of finding and correcting a defective component David Garvin, “Competing on the Eight Dimensions of Quality,” Harvard Business Review, Nov-Dec 1987

Process Control Tools

 Process tools assess conditions in existing processes to detect problems that require intervention in order to regain lost control. Check sheets Pareto analysis Run charts Scatterplots Histograms Control charts Cause & effect diagrams

Check Sheets Check sheets explore what and where an event of interest is occurring. Attribute Check Sheet

Run Charts time measurement Look for patterns and trends…

SCATTERPLOTS Variable A Variable B x x x x x x xx x x x x xx x x x x x xx x x xx x x x x xx xxx x x x x xx xx x x x x xx x x x xxx xx x x x x xxx x x xx x x xx xx x x x x x xx x x xxx xx xx xxx x x xx xxx x x x x x x xx x x x x x x xx x x xx x x xx x x x Larger values of variable A appear to be associated with larger values of variable B.

HISTOGRAMS A statistical tool used to show the extent and type of variance within the system. Frequency of Occurrences Outcome

PARETO ANALYSIS A method for identifying and separating the vital few from the trivial many. Percentage of Occurrences Factor A B C D E F G I H J

CAUSE & EFFECT DIAGRAMS Employees Procedures and Methods Training Speed Maintenance Equipment Condition Classification Error Inspection BAD CPU Pins not Assigned Defective Pins Received Defective Damaged in storage CPU Chip

Example: Rogue River Adventures

Process Control Charts  Establish capability of process under normal conditions  Use normal process as benchmark to statistically identify abnormal process behavior  Correct process when signs of abnormal performance first begin to appear  Control the process rather than inspect the product! Statistical technique for tracking a process and determining if it is going “out to control”

Upper Control Limit Lower Control Limit 66 33 Target Spec Process Control Charts Upper Spec Limit Lower Spec Limit

UCL Target LCL Samples Time In controlOut of control ! Natural variation Look for special cause ! Back in control! Process Control Charts

When to Take Action  A single point goes beyond control limits (above or below)  Two consecutive points are near the same limit (above or below)  A run of 5 points above or below the process mean  Five or more points trending toward either limit  A sharp change in level  Other erratic behavior

Total Quality Management TQM Commitment to Quality Commitment to Quality Total Involvement Total Involvement Scientific Tools and Techniques Scientific Tools and Techniques Continuous Improvement Continuous Improvement

TQM Pioneers  Early American Industry Pioneers –Walter Shewhart–Control Charts –Dodge & Romig–Acceptance Sampling –Arnold Feigenbaum–Total Quality Management  Post W.W.II / Japanese TQM –W. Edwards Deming–Total Quality Management –Joseph Juran–The cost of quality –Philip B. Crosby–Quality is free –Masaaki Imai–Kaizen –Kaoru Ishikawa–TQM-Japanese style

Deming

W. Edwards Deming  1900 to 1993  Trained as a physicist  Master of Science -- CU  Taught SQC during World War II  Went to Japan in 1946  Brought SQC to Japan  Enthusiastically adopted by Japanese

Deming’s Theory of Quality & Economics Improve Quality Costs decrease because of less rework, fewer mistakes, fewer delays, snags; better use of machine-time and materials Productivity Improves Capture the market with better quality and lower price Stay in business Provide jobs and more jobs Deming, Out of the Crisis Deming, Out of the Crisis, 1986

Dr. Deming in Person

Japanese Deming Prize  Established 1951  Annual prize  Awarded for –development of quality tools, or –quality improvement programs  Created by JUSA (Union of Japanese Scientists and Engineers

Article: “K2 quality pursuit reverses downhill skid”

Malcolm Baldridge Award  Stimulate companies to attain excellence  Recognize outstanding companies  Disseminate information and experience  Establish guidelines for quality assessment  Gather “how to” information from winners U.S. Quality Award (patterned after Deming award)

International standards for business quality and control ISO 9000  Management responsibility  Quality system  Contract review  Design control  Document Control  Purcasing  Traceability  Process control  Inspection / testing  Reject control  Handling  Quality records  Internal audits  Training  Statistical techniques

ISO  International standard  Strengthen environmental mgmt systems  Control environmental impacts  Commitment to environmental targets –regulators –insurance interests –stakeholders –public

Six Sigma  “Invented” by Motorala  Championed by GE and Jack Welch  Goal of parts-per-million process defects  Four steps 1.Measure – new metrics; measure all processes 2.Analyze – determine performance objectives 3.Improve – wholesale changes, focus on results 4.Control – monitor processes to maintain control 6666

What “Six Sigma” Means 1  = 690,000 defects per million 2  = 308,000 defects per million 3  = 66,800 defects per million 4  = 6,210 defects per million 5  = 230 defects per million 6  = 3.4 defects per million

GE Six Sigma Success GE Annual report, Letter to Our Shareholders, February 12, 1999

Does Quality Matter?  Quality and total quality cost –negatively correlated.  Quality and productivity –positively correlated.  Quality and profitability –positively associated. Garvin, Managing Quality, The Free Press, 1988

Competing with Quality Leeds School of Business University of Colorado Boulder, CO Professor Stephen Lawrence